Associated Supply, Inc. is considering introducing new product that will require a $250,000 investment of capital. The necessary funds would be raised through a bank loan at interest rate of 8%. The fixed operating costs associated with the product would be $122,500 while the contribution margin percentage would be 42%. Assuming a selling price of $15 per unit, determine the number of units (rounded to the nearest whole unit) Associated would have to sell to generate earnings before interest and taxes (EBIT) of 32% of the amount of capital invested in the new product.
a. 35,318 units.
b. 32,143 units
c. 25,575 units
d. 23,276 units
Answer: B
CPA Exam
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